Repurchase agreement: Difference between revisions

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Revision as of 14:20, 23 October 2012

(Repo). 1. A form of secured lending using a simultaneous agreement to:

(i) Buy securities now, and
(ii) Sell them back later at a pre-agreed (higher) price at a fixed future date.

The party buying securities now is the lender, paying away cash now. The lender enjoys repayment of their loan by receiving cash back from the borrower at maturity, in exchange for the transfer of the same securities back to the borrower.

In the event of the borrower's default, the lender gets the (defaulted) loaned money back by selling the securities elsewhere in the market.

2. Collateralised lending using securities as the collateral (without legal transfer of the securities).

See also